Munich Personal RePEc Archive

Why and how the western economists

should reorient their thinking?

Jakhotiya, Girish

4 June 2019

Online at https://mpra.ub.uni-muenchen.de/94318/

MPRA Paper No. 94318, posted 17 Jun 2019 14:53 UTC

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Why & how the western economists should reorient their thinking?

Dr. Girish Jakhotiya

1. Introduction The fall of American capital market was not even remotely predicted. The erosion in the

economic activism of the Euro-zone has not been so well identified. The ‘developed economy

status’ of Japan continues to exist although its economy has got stuck in an unimaginable

stagnation for almost two decades. The socio-economic design of Brexit is not very assuring

for both, Great Britain and other members of the European Union. The West does not have a

clear and complete diagnosis of the ‘political economics’ practiced by the Communist Party of

China. And the latest Trumpian confusion inside the USA is an obvious indication that the

American economists are not able to convince their President, what is good for the country in

the long-run.

To an extent the German economic model sounds sustainable for Germany’s limited growth

but it hasn’t provided any economic ignition to the other economies in the same Euro-zone.

This has created an ideological divide in Europe, which may unfortunately benefit Russia and

China to further their geopolitical ambitions. The western economic ideologues could not

exactly assess the impact of religion on economics in the oil-producing Islamic countries and

therefore could not also establish any linkage between the social aspirations of common Arabs

and political ambitions of the Arab ruling families.

The latest evidence of the collective failure of western economists is seen through their

evaluation of the WTO’s performance. There are basic flaws in the design and functioning of

this trade regulator cum facilitator. Those who championed the very purpose of WTO are now

expressing their reluctance to continue its parenting. After two decades of WTO’s performance,

we unfortunately tend to conclude that this mechanism didn’t strengthen global economy

although it certainly prescribed an operational code of conduct.

My recent study of the fourteen most influential economies has reached a sorrowful conclusion

that a common man is not happy in any of these countries. Right from the USA to Britain to

Indonesia, a common man is absolutely restless about his present and bit fearful about his

future. This observation about a common man’s economic distress is equally applicable to the

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‘market economy’ of the USA and ‘state economy’ of China. While supporting freedom of

entrepreneurship, the western economic and business thinkers probably forgot that freedom

comes with a social accountability and entrepreneurship should be based on fair-play rules. As

this was forgotten, the markets were left free to decide the existence of the weak and

disadvantaged people. Crony capitalism got its legitimacy in the technical advocacy of the

doctrine of shareholder value appreciation.

The western economists could not exactly assess the downfall of the Asian tigers in the last

decade of the last century. Later on, they attempted to forecast the future of BRICS economies

and again errored. This was mainly on account of applying the typical western yardsticks to

the eastern stories of social economics. For the same reason, the overall economic journey of

communist China has been very often misinterpreted by the western analysts as only a state-

driven economic adventurism. They do not have complete clue about India’s economic

experiments. This automatically resulted in the failure of many European and American

corporates who committed blunders while framing their broad economic strategies for handling

Indian market. The geopolitical ambitions of Russia surfaced very late on the analytical canvass

of the western economists as they were mentally preoccupied with the cold war era and its

impact on Russia’s visible economic parameters.

The overall economic deterioration of most of the western economies was measured to be linear

with a few broad apparent parameters used by the western economists. This only resulted in a

very limited analysis of the symptoms of the disease. The disease was mostly not correctly

diagnosed and hence these economies continue to bleed even at the end of second decade of

the 21st century. The consequence of this western economic deterioration is seen through a

slow, confused and complex economic journey of the entire globe. This is obviously for an

important reason that the subject of economics was seriously viewed and oriented only as a

‘science’ by the western economists, who attempted to frame it with excessively objective,

quantitative, mostly absolute and deterministic doctrines. The developed economies practiced

these doctrines and benefitted immensely for a few decades. The sustenance of western

economic doctrines was never testified with abstract, relative, qualitative and long-term

parameters. The western economists could not imagine of an integrated approach to economic

modelling. This may be elaborated here further.

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2. The integrated approach to economic modelling i.e. the four purposes of a human life to be at the core of economic modeling For many decades, the perfect market hypothesis was based on a belief that human beings think

and act only rationally and not emotionally. The emotions of greed, speculation, dominance,

victory etc. have always been influencing the economic behaviour of both, societies and

individuals. American economy deteriorated on account of unlimited greed of the powerful

rich, who kept on fulfilling it through a corporate design of crony capitalism. The common

Americans realized it very late that collectively they have been viewed only as consumers. The

Keynesian theory of ‘spend, consume and grow’ was cunningly implemented for the rapid

growth in the wealth of a few mighty Americans. Those wise economists who opposed this

greed were branded either as orthodox socialists or outdated communists.

Most of the western economies kept on receiving signals of an overall deterioration in terms of

economic disequilibrium, socio-economic inequality, rapidly reducing investment in public

infrastructure, excessive use of monetary policy mechanism to solve fundamental problems of

the economy and negligence at the efforts of innovation. These signals were mostly neglected

for three basic reasons viz. an absence of integrated economic thinking, theoretical attempts of

quantifying the qualitative issues and an overdependence on rigid economic concepts which

lost their relevance over a period of time. Concepts of full employment, quantitative easing,

tax administration, deficit monitoring etc. were not viewed as part of an integral economic

wisdom. An economic model sustains and offers perpetual and equitable results to all the

stakeholders in an economy if it uses the following model of versatile growth of a nation:

Fig 1: Versatile Growth Model

Versatile growth of a nation

Intellectual Growth

Social Growth

Material or Economic Growth

Cultural Growth

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The above model is also applicable to the growth of a human being who wants to be materially

rich, intellectually satisfied, culturally vibrant and socially connected. The European Union,

with its all genuine efforts, could not emerge as a sustainable solution to the socio-economic

problems of the fellow Europeans because this union and its member citizens do not enjoy even

reasonable economic prosperity, intellectual pursuits, cultural inclusivity and social equity.

Same could be said about majority of the Americans. They are suffering from economic

stagnation, intellectual deficiencies, cultural deterioration and social disintegration. Mr. Trump

became President by showing the Americans the big American dream, which lacks wisdom on

all the above four parameters of versatile growth. We should not blame Mr. Trump alone as

the American economists could not put forth solid ideas for navigating the economy safely into

a right direction. These economists, who do not have an integrated view of versatile and

equitable growth, are not attempting to work on the following inherent conflicts existing in the

American economy:

The doctrine of shareholder value appreciation vs. the sustainable economic prosperity

for the common Americans

An equilibrium between technological innovation and people capability &

employability

A conflict between the migrants’ role to contribute value and protection of jobs for the

locals

Impact of speedily disintegrating American social system on individual freedom and

collective social synergy.

If economics is a social science, it cannot be used effectively to address the social issues by

adhering to mathematical iterations alone. Social implications of good and bad economics are

to be analyzed with immense qualitative rigor and reasonable dose of relativity. Connecting an

economy’s total debt, public spending, fiscal deficit etc. to its GDP; demands high degree of

application of relativity. The rules and regulations of the WTO were framed without

considering this ‘relativity’. These were based on an absolute matching of a few apparent

quantitative measurements. One cannot compare the appetite, aggression and activism of a tiger

with an elephant. Most of the times, the western economists forgot this simple doctrine of

plurality. If everything was so simple and so absolute, the mathematical programming of

economics should have resolved the complex issues the developed economies are facing for so

long. If we broadly look at the present state of affairs of the economy of the USA, we may

conclude as follows:

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Table 1

Recent performance of the USA economy (Year 2005 to year 2015) compared with

China & Germany

Performance Area *Scores on a scale of ‘0 to 5’

USA China Germany

(A) Material or Pure Economic Performance

GDP Growth

Average purchasing power of a common man

2.5

2

4

3

3

4

(B) Intellectual Performance

Efforts of innovation

Investment in innovation

2

2

2.5

4

4

3

(C) Cultural Performance

Entrepreneurship of masses

Soft strategies of economic networking

2.5

2.5

3

3

5

4

(D) Social Performance

Policy for migrants

Social equity

3

2

2

3

4

4

Total Score (Out of 40) 18.5 24.5 31

Percentage Score 46.25% 61.25% 77.5%

*Scale of ‘0 to 5’ 5 – Outstanding, 4 – Very Good, 3 – Good, 2.5 – Average, 2 – Poor, 1 – Very Poor & 0 - Nil

While treating and effectively using economics as a social science, a common man must be at

its center. Probably this was forgotten by most of the members of the European Union. The

European economists, who have been excessively engaged with micro mathematical analysis

of small sectoral issues, did not attempt to evaluate the versatile progress of a common man in

his life cycle. As a result, except Germany to an extent, the European countries are almost

clueless today to decide between the following:

Control on fiscal deficit and socio-economic competency building of the masses

Long-term investment in infrastructure and short-term liquidity

Resource-based vs. competency-based planning

Socio-economic freedom of each member country vs. further integration of the Euro

Zone

This cluelessness of the European leaders and economists is evident through their latest

approach to collective and country-wise economic reforms. The present confusion about the

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post-Brexit scenario is also an example of this cluelessness. The most powerful members of

the Euro-zone can broadly evaluate their present socio-economic status, if their respective

economists apply an integrated and yet relative approach to the versatile wellbeing of a

common man. We may have a comparative broad view of this versatile wellbeing as follows:

Table 2

Parameters of versatile wellbeing Germany Britain France Italy

Basic economic stability

Competency upgradation

Social status

Economic sustainability

Overall advancement

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4

5

4

4

3

3

4

2.5

3

2.5

3

3

2.5

2.5

2

2

2.5

2

2

Total Score (Out of 25) 22 15 13 10

*Scale of ‘0 to 5’ 5 – Outstanding, 4 – Very Good, 3 – Good, 2.5 – Average, 2 – Poor, 1 – Very Poor & 0 - Nil

It is interesting to note here that the western economists initially applied their own typical

parameters to evaluate the mysterious economic progress of China and could not reach any

conclusive formula or design which could unfold the China story. It was only after the year

2009-10, the western economists (who learned a few unexpected lessons from the fall of

American capital and real estate markets) started thinking differently and subjectively to

analyze China’s robust success. Yet this analysis is not complete, authentic and useful.

Actually, China’s economic story is a complex mix of three economic styles (as I call them),

which may be presented as follows:

Fig. 2: Mix of Economic Styles

Social Economics

Political Economics

Social Economics

Bureaucratic Economics Bureaucratic

Economics Bureaucratic Economics

Social Economics

Political Economics

The degree of intensity

of economic style

1980 1990 2010 2018

100

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Post 2010, China started playing the dangerous games of political economics to hide its

economic failures (or slowdown). Geopolitical adventurism, BRI, loans advanced to the poor

Asian and African countries, artificial protection given to Chinese banks and state enterprises

and growing dominance of the politburo in most of the areas of economic activism are some

of the obvious examples of these dangerous games. The China story illustrates the importance

of understanding the DNA of an economy. It need not be a clinical exercise as it sounds. Rather

it is a subjective understanding of the human factor that determines a certain cultural journey

of an economy. The western economists could not notice this cultural journey as they heavily

depended on a mathematical analysis of China’s operational economic tactics. If we

excessively get engaged with the assessment of economic tactics of a country, we neglect its

deep-rooted economic strategies. Tactical references provide a short-term perspective of an

economy but are not useful to understand its DNA.

If the DNA of a country is broadly understood, its economic journey can be viewed more

accurately. It is this DNA, which makes the global economic relationships complex. The WTO

design of trade relationships does not consider this DNA systematically hence it is more tactical

and less strategic. Let us look at the DNA of a few influential economies and connect it with

the economic style:

Table 3

Economy DNA Economic Style

USA Entrepreneurial DNA of the capitalist rich

and systemic DNA of the poor

A mix of capitalist and bureaucratic

styles

China Exploitative & dominant DNA of the

members of Communist party and robotic

DNA of the masses

Capitalist for the state and socialist

for the common people

India Exploitative DNA of the rich and

superstitious DNA of the poor

Political for the rich and

bureaucratic for the poor

Saudi Arabia Exploitative DNA of the rulers & their

agents and robotic DNA of the masses

Political for the rulers and

bureaucratic for their subject

Britain Conservative DNA of the rich and robotic

DNA of the poor

A mix of capitalist and systemic

styles

France Historic DNA of the rich, entrepreneurial

DNA of the middle-class and robotic DNA

of the lower middle-class

Capitalist for the rich and socialist

for others

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Germany Entrepreneurial DNA of the rich and

conservative DNA of others

Capitalist for the rich and systemic

for others

Russia Exploitative DNA of the rich and robotic

DNA of others

Crony capitalist for the rich and

communist for the masses

Indonesia Exploitative DNA of the rich & their agents

and systemic DNA of the masses

Capitalist for the rich, socialist for

the middle-class and bureaucratic

for the poor

World-over the middle-class people have become lower middle-class and the lower middle-

class have become poor, if we consider the relative purchasing power of the respective

currencies. Moreover, these people do not enjoy the same happiness index, which they used to

enjoy three decades ago. Here again the western economists could not exactly carry out a

diagnosis of this backward economic journey as they didn’t differentiate between the DNAs of

the countries like USA and India.

Most of the western economic ideologues got stuck with an extreme application of the doctrines

of freedom of entrepreneurship and market economy for many decades. They were

ideologically afraid that the ugly communism would surface again and restrict the liberty of

capitalism. This frightened mind always compelled them to advocate another extreme of

‘freedom of capitalism from the state’s socialist laws’. This extremist emphasis on the freedom

of entrepreneurship gradually led them to an all-time powerful status of the crony capitalism.

If they would have used the integrated approach to economics, they could have probably guided

their respective governments to assess and avoid today’s draconian effects of crony capitalism.

As this was not done, people are losing faith in genuine capitalism too.

An integrated approach to economic analysis can simplify the understanding of the vicious

circle of cronyism to populism. This requires the economists to put a common man at the center

of their economic modeling. The jungle theory of survival of the fittest was repeatedly and

mindlessly applied by many western economists while advocating the so-called sacred role of

the market. These people, for many decades, believed that privatization could solve all the

problems of mankind. While doing so, they conveniently forgot that an unchecked privatization

was a limitless permit for the crony capitalists to play havoc. This has been unfortunately found

very painful in the democratic countries. Let us look at this vicious cycle:

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Fig. 3: Vicious Cycle of Cronyism to Populism

Time and again it has been proved that the ultimate impact of crony capitalism is the politicians

resorting to populist nationalism. In other words, social economics gets replaced by nationalist

economics. The crony capitalists normally prefer a protected economy to enjoy full political

(or government) patronage. They play on a safer home ground where the rules of the game are

already manipulated in their favor which restrict the entry of strong external competitors and

crush the entry of local small contenders. To conclude, crony capitalists and crooked politicians

make the democracy a farce, be it the case of USA or India.

The western economists need to revisit their definitions and assumptions prescribing the critical

economic concepts such as freedom of capitalism, poverty & relative competencies, relative

socio-economic inequality, populism & political economics, accommodating fiscal deficit to

run the welfare programs for the poor etc. As mentioned in the earlier paragraphs of this paper,

the western economists need to evaluate the inherent weaknesses in the structure of an economy

and not just conduct a segmental analysis of the issues using the orthodox parameters.

3. Major areas of economics where the western economists need to reorient their thinking and approach 3.1 Equilibrium of an economy’s drivers One major reason for the continued deterioration of western economies is the disequilibrium

of their driving forces. As stated earlier, the continuity of this equilibrium was mostly left to

the market to decide. Any economy, rich or poor, developed or developing needs the following

basic equilibrium:

Excessive freedom of capitalism

Unchecked crony capitalism to exploit the economy

The rich to enjoy most of the national resources

Populist elections to be funded by the crony capitalists to woo the

poor voters

The poor to lose growth opportunities & face severe socio-economic inequality

Inadequate resources for the poor to build-up their

competencies

The politicians to pay back to the cronies

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Fig. 4: Basic Equilibrium

The western economists have not developed any qualitative model of socio-economic

equilibrium so far. Especially after 1990, most of the governments of developed economies do

not have a suitable model for public welfare. There is a huge competency gap between an

average American worker and a German worker. The German government spent considerable

resources on building-up contemporary competencies of its people. Germany also emphasized

the role of SMEs in maintaining regional economic activism and creation of jobs. On the

contrary, the USA, South Korea and Japan didn’t monitor the monopolistic (and exploitative)

role of their big corporates.

3.2 Equilibrium of an economy’s sectors The western economic ideologues while emphasizing the three consecutive waves viz.

agriculture, manufacturing and servicing, didn’t pay enough attention to the integrated and

balanced impact of these sectors. As a result, many economies unfortunately overemphasized

the service sector (and now nano technology to that effect) at the cost of agriculture and

manufacturing. This negligence created an unimaginable pressure on the service sector to

create jobs and maintain the growth momentum of the economy. Right from the USA to Britain

to Russia, almost every economy is facing this serious sectoral disequilibrium which reflects

in the transactional disputes presented on the WTO platform. This disequilibrium will have to

be viewed together with the deterioration in each economy’s capacity to sustain itself against

global slowdown. In other words, the global economic activism is seriously threatened today

by the basic unanswered challenges of loss of jobs, stagnation in primary economic growth,

negligence towards new capital formation & investment in new infrastructure and loss of

innovative rigor in the manufacturing sector etc. The developing economies like India, Brazil

E

The role of SMEs & people at large

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and South Africa learned a few lessons from the developed economies and are timely working

on this possible sectoral disequilibrium. The common people from the developed economies

have almost lost their happiness index especially during last three decades. A logical reasoning

for this loss may briefly be presented as follows:

Fig. 5: Reasons for Reduced Happiness Index

3.3 Measuring the development status of an economy It almost becomes ridiculous when the Japanese economy faces serious stagnation and yet

enjoys third rank among the economies of the world, on a few traditional parameters. It is now

well known that the growth indicators connected to an economy’s GDP are absolutely

inadequate and inefficient in guiding the exercise of both, long-term and short-term economic

planning. China’s GDP growth has impressed the world for two decades but inherently it is

facing a qualitative deterioration in terms of natural environment safety, people capability, rural

economy management, social integration, private entrepreneurship and quality of political

governance. The western economists mostly separated social economics from political

governance, which created confusion in defining the long-term socio-economic stability of a

nation. The examples of Brazil, Venezuela, Saudi Arabia, Italy and Spain amply provide the

evidence of a serious disconnect between the measurement of quantitative economic growth

and qualitative socio-political maturity. On a different note, this can also be said about Japan

whose economy has got stuck in self-created, multi-angular stagnation. The western

economists will have to rigorously work on a new, comprehensive, sustainable and meaningful

development index. This index should primarily take care of a versatile measurement of a

The quantum of damage caused to Human Economics & increase in crony capitalism

Reducing Human Factor in economic

activism

Agriculture - Manufacturing - Service

Years of socio-economic disintegration (?)

1940 2015 2010 1960 1990

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nation’s inclusive, sustainable, equitable and participative economic growth. A linear matrix

(with its mathematical limitations) of the development index may be presented as follows:

Human satisfaction without systemic

sustenance

The best development index

The average development index

The worst development index

Robotic growth without human

satisfaction

Fig. 6: Development Index

We may attempt to apply this liner matrix of development index to a few influential economies

as follows:

Table 4

Influential Economy

Application of the Development Index (*scores on ‘0 to 5’ scale) Sectoral equilibrium

& performance of

the economic drivers

Impact of

transformational

factors

Happiness

Index of a

common man

Quality of

political &

bureaucratic governance

Development

Index

(Total score Out of 20)

USA 3 2.5 2 3 10.5

China 3 3 2.5 2 10.5

India 3 2.5 2.5 2.5 10.5

Saudi Arabia 2 2 2 2 8

Britain 3 2.5 2.5 3 11

France 3 2.5 2.5 3 11

Germany 4 4 3 3 14

Russia 2 2.5 2 2 8.5

Indonesia 2.5 2 2.5 3 10

Japan 3 3 2 4 12

*Scale of ‘0 to 5’ 5 – Outstanding, 4 – Very Good, 3 – Good, 2.5 – Average, 2 – Poor, 1 – Very Poor & 0 – Nil

- The transformational factors of an economy + i.e. innovation, technology & people’s competency development

- The quality of political & bureaucratic governance + +

The four aspirations

of a common man defining

his happiness

index

-

+ The sectoral growth & development clubbed with the economy’s three main drivers -

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All the above four components of the Development Index may further be analyzed and

measured through their respective subcomponents. For example, the happiness index of a

common man may be further divided into economic, intellectual, cultural and social happiness

or the transformational factors can be defined as the impact of breakthrough innovation,

investment in technological infrastructure and new employable competencies of the common

workers. The components of Development Index are interdependent variables to a large extent

and therefore their connectivity should not be just measured quantitatively but it should be

viewed qualitatively for appreciating their abstract interdependence. For example, Japan’s

score is second highest after Germany but its happiness index is poor. This compels us to look

at the societal system or DNA closely. The happiness index of the USA too is poor although

the quality of its political and bureaucratic governance is good. This too indicates that there is

something seriously wrong with the American societal system. China’s story can be unveiled

if we carefully analyze its Development Index. The inherent weaknesses in its socio-economic

model can be unearthed to forecast its economic journey broadly during the next five to ten

years. The western economists will have to develop an integrated approach to exactly

understand the connection between Japan’s economic stagnation and its social DNA.

3.4 Too much and too micro mathematical analysis of the mostly known facts Probably it has become customary in the academic world of western economists to conduct a

deep, quantitative analysis of a micro (or mini-micro) economic issue and reach only

quantitative conclusions which are broadly known. From the year 1950 to 1995, quantitative

applications to economics reached a level of excessive and deterministic conclusions serving a

limited purpose. Most of the western economists either hesitate or systematically do not attempt

to connect the various segmental micro observations and conclusions to see a macro integrated

picture. For example, the consumption patterns of the American consumers are thoroughly

analyzed to understand the pricing function of the market along with a deeper correlation

between demand and supply. But the impact of consumption on the household savings, the

domestic loans, creation of fresh capital and high cost of living are not analyzed and connected

with the economy’s inherent strength or weakness. The American economists carry out a

thorough analysis of the taxes paid by the American multinational corporations but neglect the

adverse impact of their functioning on America’s collective performance in the field of

innovation. These economists probably enjoy too much of mathematical and algorithmic

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analysis of micro, independent variables which do not adequately support in the long-term

economic decision-making process. After 1990, as the economies started getting connected

with the Asian and African economies on a much larger scale, the western economists gradually

started realizing that the socio-economic solutions cannot be robotic, quantitative and

deterministic. As stated earlier, this was mainly because most of the Asian and African

economies have not been working on perfect market hypothesis. Even the twenty-eight odd

members of the European Union realized it very late that their DNAs are inherently different.

Germany’s aloofness, Britain’s exclusiveness, France’s social confusion and the Italian

carelessness cannot be tackled with one single quantitative model.

The American economists understood the possible grave effects of economic inequality,

expected to occur in next decade, on the sustainability of their economies. Unfortunately, they

continue to search the reasons of this inequality in a segmental manner based on limited and

deterministic factors which could be connected to each other through an arithmetic algorithm.

Initially these reasons were found as fiscal and monetary. Later on, the analysis reached to a

point of identifying the ill-effects of crony capitalism. Very recently these ideologues found

that the causes of American economic deterioration are quite deep-rooted. They are not just

economic. The socio-cultural fabric of American life style, the business and earning models

used by American entrepreneurs, the rapid deterioration in American people’s employability

and the short-term gain from cheaper Chinese goods were all interdependent causes which

damaged the basic frame of American economy. Such a complex and unique situation cannot

be evaluated by using oversimplified quantitative parameters. The situation demands more of

strategic reforms to be executed with operational excellence and tactical management of varied

types of hurdles.

To use an analogy, the western economists thoroughly understand the trunk, tail, legs and

stomach of an elephant but they cannot see the whole elephant in totality. They can deeply

assess the impact of ugly financial derivatives but do not challenge the basics of fundamentally

wrong financial engineering. The American banking system (along with the British banking

system) claims to have developed many interesting financial products but could not present

simple investment avenues for the American middle-class investors. It is well understood that

a mathematical model can resolve a few complicated situations, cancel unreasonable solutions

and reach to a right conclusion or decision. It cannot give an objective answer to a subjective

situation or question. The right solution comes out when all micro and quantitative conclusions

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are connected with each other meaningfully, comprehensively and if required subjectively. For

example, the American superrich cannot be easily convinced to sacrifice for the American poor

unless they are shown at least a few long-term, definite advantages of such sacrifice. Now this

proposition involves many subjective assumptions which are to be pragmatically and

collectively considered to reach an acceptable model. The western economists should frankly

admit a fact that subjective solutions can be selectively better than no solutions, because every

economy works with pragmatism and not with quantitative perfection. When economics is a

social science, it cannot be narrowed down by the oversimplified mathematical iterations. This

is for a simple reason that where there is a society, there is a subjectivity.

3.5 Revisiting the WTO, IMF, World Bank and many other global institutions Not just the western economists but all of us need to evaluate the role, structure, processes and

policies of the global institutions in a radically changed global scenario. As I stated earlier, the

design of the WTO has been effectively used for conducting and regulating the international

trade but not for strengthening the weak economies. We need an institution that should mainly

work on basic or structural reforms of the economies and create a sustainable, inclusive,

participative and equitable global economic activism. It is sad to notice that the following

global and regional incidents are badly impacting the performance of the global institutions,

especially the WTO and the western economists are not appropriately integrating them for a

total view to reach pragmatically acceptable solutions:

Excessive use of pseudo nationalism in the game plans of competitive politics by the

leaders of USA, Britain, India, Russia, China and Japan

Institutional heads proposing and using short-term tactical solutions like quantitative

easing, monetary policy mechanism etc. to address the long-term strategic issues

Big players threatening each other and impacting the economies of small countries very

adversely

Misuse of formal and informal banking channels by the crony capitalists whose

presence at the global institutions has increased to an alarming level

Member countries are more bothered about their short-term trade deficits than the long-

term issues of building new infrastructure, developing new technology and reviving the

basic sectors of agriculture and manufacturing

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Countries like China and Russia are further complicating and deteriorating the

structures of regional economic cooperation as these countries are indulging in serious

geopolitical aggression.

Many African and Asian countries are piling up liabilities of international debt to meet

their short-term populist obligations. This has seriously damaged the basic frame of

their economies.

There can be a long list of these damaging and disestablishing incidents which have made the

socio-economic survival of common people an uncertainty. The western and eastern

economists will have to work together to create a new mechanism which will arrest this global

deterioration, support socio-economic cooperation and collaboration, nullify the negative

adventurism of some of the warmongering countries and build up a sustainable formula to share

global resources in the most equitable manner. If the economists of the world do not work on

this new, powerful global institution then certainly the world would rapidly move towards a

socio-economic collapse. This very possible collapse is evident if we keenly look at the

following possibilities (with an element of abstract subjectivity):

China and Russia are aggressively using their geopolitical tactics to suppress domestic

economic frustration. This has already impacted the defense budgets of Japan, South

Korea, Taiwan, members of European Union, India and Philippines.

The oil reserves are rapidly diminishing hence countries like Iraq, Iran, Saudi Arabia,

Oman etc. need alternate economic programs. Instead, these countries are getting into

a serious regional war.

Except Germany, the other members of the European Union are not seriously working

on strategic long-term reforms

With the growing disputes among the important members of the WTO, this institution

is losing its credibility very fast.

India, USA, France, Italy, Brazil, Mexico etc. democratic countries are resorting to

illogical economic programs, which can damage their long-term stability.

Pakistan, Afghanistan, Saudi Arabia and China are indulging in regional political

conflicts on a bigger scale.

USA, although enjoying its shale gas, has not found pragmatic answers to its strategic

issues like income inequality, unemployment, inadequate competency of the workers,

growing greed of capitalists, declining standards of political governance.

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Instead of working in an isolated manner on the micro issues, economists should think ‘macro’

and save the global economy from a possible collapse. They need to work on a massive

transformation as below:

Fig. 7: Transformation

The western economists need to revisit their orthodox ideologies and design new, vibrant,

sustainable and pro-poor economic models considering the following realities:

Fiscal and monetary deficits and their connectivity with pro-poor programs.

A balancing act between consumption-based and saving-based economic planning

Financing of the SMEs and agriculture using pragmatic parameters of value-addition to

the economy

Quantitative easing, national liquidity and power of the currency

Taxing the rich at a higher rate to raise funds for financing the pro-poor programs

Long-term investment in basic infrastructure (like competency development, housing,

medication etc.)

Avoiding fictitious financial products and restricting the unreasonable bail-outs of the

corporates and banks

Regional and global cooperation for the movement of capital, labour, technology, ideas

and other resources

A pragmatic control on ‘collaborated monopolies’

3.6 Holistic accounting of the performance of big corporates (both, domestic and

multinational) During last three decades, most of the multinational corporations served the purpose of their

mighty shareholders at the cost of welfare of common people from the countries of their origin

and operations. These corporates used their might to apply most of the doctrines of crony

capitalism to rapidly appreciate the wealth of the self-centered shareholders. Misuse of tax and

Political Economics

Bureaucratic Economics

Processes, Products, Policies & People

Transformation to be led by a new powerful institution

Social Global

Economics

18

patent-related laws, damage to the natural environment, monopolistic consumption of natural

resources, destruction of the competition, hidden & indirect patronage by the politicians,

consumption of hidden subsidies & exemptions, exploitation of workers & vendors, misuse of

bank finances and misbehavior at most of the stock exchanges have been the tactics of these so

called ‘global collective entrepreneurs’. Both, the western and eastern economists should

develop a measurement model of holistic accounting to evaluate the true contribution made by

the multinational companies to global economy as well as to the economies of their own

countries. In other words, we need an objective and comprehensive model for conducting a

cost benefit analysis of the gains enjoyed and sacrifices made by these multinational giants.

Most of the indirect and hidden advantages are not presently accounted to arrive at a true and

net contribution made by these corporations to global humanity in long-run and financial

revenue in short-run. Countries like the USA, South Korea, Japan and now India are seriously

facing a dilemma of treating these multinational conglomerates amicably. The declining

performance of the US economy is also a result of the crony socio-economic behaviour of these

corporate sharks, which seem to be beyond appropriate repairs, for their size and influence.

The biggest threat of these conglomerates is to the social priorities of the democratic countries.

These social priorities mainly include a right use of natural resources, promotion of small

business enterprises and an upliftment of the downtrodden people. Countries need the capital,

technology and inventions made by these big corporates to put their economies on a fast track

of growth. But this cannot be at the cost of long-term sustainability of a nation’s ecosystem,

socio-economic equality and inclusion of the weak in the main stream of economic activism.

The economists will have to develop a model that would capture and measure (although with

a degree of subjectivity) the qualitative performance of the influential corporate capitalists.

3.7 Technological applications to economic forecasting Economists working in the specialized areas of corporate finance or business economics,

portfolio management and financial engineering are lately realizing the importance of

‘behavioural economics’. What they are presently missing is the application of these

behavioural patterns or theories to the suddenly or abruptly taken economic decisions by the

national leaders, central bankers and corporate CEOs. Sometimes, when these leaders do not

visualize complete and objective answers to the conflicting economic issues, they intuitively

apply the theory of chaos with a certain calculated risk and reach at least suboptimal solutions.

For example, America’s president Mr. Trump is working on the trade relations with China,

19

medical insurance subsidies for the poor Americans and creation of semi-skilled jobs for lesser

educated young Americans. Apparently these three initiatives look unrelated. But if we attempt

to connect them with the basic design of USA’s economy, we find a common thread of

minimum purchasing power & savings sustained by the American families with great hardship.

The complexity of the interdependence of the above mentioned three initiatives could probably

be compared with the complexity of the game of chess played by two equally eminent players

who get stuck in the middle of the game for too many options of a strategic move to be played

which would virtually lead to a possible victory. A leader like Mr. Trump, his economic

advisors and subject specialists also are stuck in the middle of the game comprising of

conflicting interests and possibilities. An economic puzzle that would impact the life of

millions of people will have to be solved most amicably, which would require a pragmatic

combination of (i) deletion of obviously negative factors (ii) emphasis on minimum guaranteed

result with most minimum conflicts and (iii) pragmatic certainty of the approach to reach such

a result. This combination should be possible if it is supported by a facilitating mechanism that

would comprise of (i) quantitative applications to delete the obvious negatives (ii0 advanced

quantitative applications to minimize too many options available to reach the minimum

guaranteed result and (iii) broad behavioural patterns which should amicably resolve the

conflicting objectives. This mechanism obviously would require a reconciliation between the

signals offered by analytical technology and the intuitive responses by the decision-makers.

These intuitive responses shall be a fair combination of emotional intelligence, professional

intelligence and quantitative intelligence. The western world is certainly ahead of the

developing nations like India, China and Brazil in terms of application of artificial intelligence.

But the western economists used to work on a single-track economic simplicity as their

economies were well organized for many decades. It is the economists from the developing

and poor countries who have been exposed to conflicts, contradictions and complications of

socio-economic variables, especially on the background of limited resources and public

maturity. This exposure possessed by the eastern economists should be very useful for the

western economists to define the pragmatic behavioural patterns. The western ideologues

should realize that technological applications alone won’t add accuracy to their economic

forecasting. This may be exhibited as follows:

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Figure 8: Economic Forecasting

The western economists should appreciate a practical fact that any technological application to

economic forecasting would be very effective if the behavioural patterns are well understood

to resolve the subjective interpretations of the complicating claims made by various

stakeholders.

3.8 Religion and Economics The western countries could separate religion from economics to a great extent since 19th

century. The impact of religion, racism, regionalism and radicalization on economics continues

to harm global economics in the 21st century. Most of the rational theories of economics are

not applicable to many Islamist countries today. Unfortunately, the western world treated these

countries as a captive source of crude oil and a market for readymade goods produced by the

western countries. One of the serious dimensions of Islamic threat to global harmony is

‘economic’. There is a growing perception among the Muslim youth about the reluctance of

the rich western nations who only exploit the oil reserves and support the royal families of the

Islamist countries. Growing fundamentalism in Indonesia and Malaysia is also a result of

economic failure of their governments and corruption of the crony capitalists who are

consuming the natural resources for their self-interest. Governments in democratic countries

like India too, resort to religious gimmicks when they do not deliver on the economic front. A

country like Israel too uses religion as a shield against the people of Palestine who demand a

genuine share in the regional economic progress. Many right-wing political parties, to support

their exploitative orthodox tactics, take the shelter of religion and culture. The western

The deletion of the

obviously negative factors

Minimizing too many options

available to bring simplicity to the right approach

Agreement on minimum

guaranteed economic justice to

all stakeholders

The process of economic analysis & conclusion

Behavioural Application

Technological Application

Very Low

Very High

No Application

Fully Technological

Very High

Very Low

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economies and their economists cannot function in isolation especially when their rich world

now got integrated with the poor world. During the coming decade, the conflict between the

‘haves & have nots’ will be given a religious or cultural colour to hide economic exploitation.

Its process has already begun. Surprisingly on the other side, China’s Communist Party has

developed its own political autocracy, which deals with different countries of different religions

with same geopolitical agenda based on its own hidden tactics. The western economists could

not yet decode the exact socio-economic model and geopolitical game-plan presently being

used by China. Therefore, the USA and the European Union are not able to exactly strategize

their economic relationship with this expansionist country. The western economists should not

evaluate China’s economic might, apparently looking at the hardware of its economic model.

The software of China’s economic journey is more social in terms of robotizing its entire

society. The social frame is weak, which will not sustain China’s economic growth in long-

run. Already its growth rate has declined and therefore it is looking at geopolitical solutions to

cover-up the economic failure in near future.

3.9 Real structural reforms for activating ‘people participation’ in collective economic

programs The people of USA or India or Saudi Arabia or Japan are not in a driving seat of their respective

economies. Right from their routine economic activities to special development programs,

almost everything is decided or influenced by the capitalist bodies with political and

bureaucratic support. The serious economic gap between the rich and poor is a result of absence

of collective economic activism of the common people. This is also a result of people’s

conceptual inability to understand the structural flaws in their respective nation’s economic

policies, doctrines, practices and culture. The western, especially the American economists will

have to seriously look at the real root causes of the present pathetic condition of common

Americans. I may present it as follows:

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Figure 9: Causes of the present condition of common Americans

Today’s common Americans are caught in a vicious economic cycle. They are suffering from

a socio-economic system which has deteriorated to the level of a serious patient suffering from

multiple organ failure. The American economists will have to reorient their thinking about their

fellow common Americans and build-up a virtuous cycle of:

Figure 10: Virtuous Economic Cycle

Opposite is the case of Japanese economy. The Japanese people need a big boost to their

positive economic activism as follows:

Common Americans’ disturbed family system, excessive consumerism fueled by the craze for costly branded products and inadequate spending by the government on public welfare

Low public savings, lower employee competencies as a result of inadequate incurrence on education, much lower happiness index as a result of disturbed family system

Tax avoidance, hidden huge subsidies enjoyed by American corporations & their rich owners, exploitation of nation’s resources through political lobbying and serious reduction in welfare subsidies, to benefit the rich at the cost of the poor

Lesser resources left with the government to spend on revival of basic infrastructure, capacity development, affordable housing, hence leading to excessive application of expensive privatization

Capabilities

Jobs & Good Salaries Good Savings

Avoiding Consumerism

Good Family System

Ability to spend on learning

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Figure 11: Big boost to Japanese Economy

The real structural reforms to activate the collective economic programs would require an

integrated view of the following interdependent factors (with a reasonable degree of social

subjectivity):

Pragmatic fiscal deficit management to support the poor

Long-term investment in capability building for which the rich should sacrifice

Suitable investment products for the common investors to boost public savings

People to ‘save more, spend less’ in USA and ‘save less, spend more’ in Japan

Eradication of corporate and banking frauds and pseudo financial engineering

4. Conclusion The western economists certainly need to reorient their thinking in terms of both, ideology and

approach. Their ideology will have to be more global, participative, accommodative and be

based on a versatile (although subjective) understanding of the global economy. At the ‘center

of analysis’, they should put a common man so that the extremes of right and left thinking

could be avoided. Their approach to economic analysis need not be only quantitative, which

cannot address the complex, qualitative interdependent variables. Unless they connect together

the various micro parts of their analysis, a macro and complete picture of an economy won’t

Japanese common people to get

appropriate investible financial products

People’s savings brought to the main stream of economic

activism

New public & corporate

investments in & outside Japan

Attractive rate of return to be made available to the

common investors

Expansion of the economy both,

vertical & horizontal

End of long-drawn stagnation, negative interest rate regime,

economic pessimism, idle capital etc.

Japanese companies, capital, technology,

employee force to be used for positive

growth in each sector

The Positive

Economic Activism

24

emerge. They need to combine both, quantitative objectivity with qualitative relativity of many

known and not so well-known factors impacting the global economy. They should revisit some

of the fundamental economic concepts, doctrines and assumptions, which they have been using

for decades. These will have to be revised or reframed to better understand the new global

economy, which is passing through uncertain times.

References 1. Thomas Piketty, “Capital in the Twenty-First Century”

2. Prof. Joseph E. Stiglitz, “The Great Divide! Unequal Societies and What We can Do about

Them”

3. Dr. Girish Jakhotiya, Paper titled ‘Let the rich flourish by sacrificing for poor’

4. Dr. Girish Jakhotiya, Paper titled ‘Are we heading towards a global economic collapse?’

5. Dr. Girish Jakhotiya, Paper titled ‘Refining the Development Index of a nation’